DENMARK Law and Practice Contributed by: Dan Bjerg Geary, Rasmus Otterstrøm Helleland Boisen and Laura Sloth Olesen, Bech-Bruun
courts. The enforcement of foreign arbitration awards is carried out by the Danish bailiff court. However, there are specific circumstances under which foreign arbitration awards may not be enforced in Denmark. This can occur if the defendant did not receive proper notice of the arbitration proceedings or was otherwise unable to present their case. These exceptions apply to all arbitration awards, including those from countries that are party to the New York Convention. 9. Payment and Taxes 9.1 Restrictions or Limits on Franchisee Fees and Royalties No restrictions are imposed on the payment of fran - chise fees, royalties or service fees under Danish law. The parties are free to agree on the specific amount of franchise fees, royalties or service fees. However, payment of franchise fees, royalties or ser - vice fees must comply with Section 36 of the Contracts Act regarding unfair provisions. Section 36 of the Con - tracts Act is primarily aimed at protecting consumers from unfair terms imposed by economically stronger and more knowledgeable business entities. While its primary focus is consumer protection, its applicability extends to business-to-business transactions, offer - ing a layer of fairness in commercial dealings. Despite its broad scope, Danish courts are reluctant to apply Section 36 to commercial contracts. There is no general or annual maximum payment per - mitted in foreign currency or any maximum for royal - ties. 9.2 Withholding Tax The Danish tax system distinguishes between com - panies and individuals based on their tax residency status. Those who are considered tax residents in Denmark – whether they are companies or individuals – are subject to full tax liability. This means that they are obligated to pay taxes on their worldwide income,
adhering to the comprehensive tax regulations set forth by Danish law. Further, companies and individuals that are not tax- resident in Denmark may be subject to a limited tax liability in Denmark on certain types of income. This implies that their tax obligations are confined to cer - tain types of income sourced from within Denmark, and they should not be required to pay taxes on income earned outside the country. Royalties Royalties are subject to a 22% (for 2025) withholding tax. This means that foreign companies (foreign fran - chisors) are subject to a limited tax liability concern - ing royalties received from sources (a franchisee) in Denmark. The Danish franchisee must withhold the tax and report the royalty payment to the Danish tax authorities by no later than the 10th of the month fol - lowing the payment. In most cases, the withholding tax rate can be reduced in accordance with a double taxation treaty. The tax liability does not include royalties that are covered by EU Directive 2003/49 on a common sys - tem of taxation applicable to interest and royalty pay - ments made between associated companies of dif - ferent member states. However, the exemption only applies if the paying company (the franchisee) and the receiving company (the franchisor) are associated as mentioned in the Directive for a continuous period of at least one year, and if the payment date also falls within this continuous period. Fees from Denmark that fall outside the definition of “royalties” will generally not be subject to Danish limit - ed taxation, which entails that no withholding tax must be withheld in Denmark. Therefore, “service fees” and “technical fees” paid from Denmark should generally not trigger withholding tax in Denmark. Double Taxation Treaties Foreign franchisors may find themselves subject to taxation by multiple jurisdictions on the same income. However, Denmark has entered into double taxation treaties that aim to mitigate this issue of double taxa - tion.
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